Pound to Australian Dollar Exchange Rate Rises as RBA Holds Interest Rates

February 2, 2021 - Written by John Cameron

STORY LINK Pound to Australian Dollar Exchange Rate Rises as RBA Holds Interest Rates

GBP/AUD Exchange Rate Edges Higher as RBA Extends Quantitative Easing Programme

The Pound to Australian Dollar rose by 0.3% today, with the pairing currently fluctuating abound AU$1.79.

Today saw the Reserve Bank of Australia hold its interest rate at 0.1%. However, the Australian Dollar fell against Sterling today after the RBA announced that it will pump $100 billion into Australia’s economy by extending its quantitative easing (QE) programme.

The current QE programme is expected to last until its deadline in April. However, the RBA also reiterated its concerns over weak inflation, which is predicted to continue to fall below its target of around 2-3%.

Sarah Hunter, the chief economist a BIS Oxford Economics, said that the QE programme appeared to be at odds with the RBA’s generally optimistic outlook, adding that ‘to achieve the RBA’s inflation target the economy needs economic activity to be significantly higher than its pre-Covid peak.’

Hunter also said:

‘Australia’s economy entered the Covid downturn with capacity to spare, and notwithstanding the hit to migration the population and so productive potential of the country has increased since then.’

As a result, AUD investors are becoming more concerned about Australia’s economic outlook in the months ahead.

Pound (GBP) Exchange Rates Rise as UK Covid-19 Vaccinations Continue

The Pound rose against the ‘Aussie’ today as the UK’s Covid-19 vaccination programme is still well underway. Over 13% of those in the four priority categories already having received their first dose of the vaccine.

As a result, GBP investors are becoming increasingly hopeful that the UK Government will meet its target of vaccinating the vulnerable by mid-February. This would eventually lead to a steady reopening of the nation’s economy, should the programme be deemed successful.

In UK economic news, today saw UK house prices dip ahead of the end of the stamp duty holiday. Consequently, some Pound traders are becoming jittery about the prospects for the housing market going forward.

Robert Gardner, Nationwide’s Chief Economist, said:

‘To a large extent, the slowdown probably reflects a tapering of demand ahead of the end of the stamp duty holiday, which prompted many people considering a house move to bring forward their purchase.’

‘While the stamp duty holiday is not due to expire until the end of March, activity would be expected to weaken well before that, given that the purchase process typically takes several months (note that our house price index is based on data at the mortgage approval stage).’

With few other data releases of note, however, GBP investors are overall confident about the UK’s robust rollout of coronavirus vaccines.

Could an Improvement in Australia’s Construction Sector Boost the Australian Dollar (AUD)?

Australian Dollar traders will be looking ahead to tomorrow’s publication of December’s Australian Building Permits.

Any improvement in Australia’s construction sector would be AUD-positive.

Tomorrow will also see a speech from the RBA’s Governor, Philip Lowe. Any dovish comments about the outlook for Australia’s economy would be AUD-negative.

Pound traders will be awaiting tomorrow’s release of January’s UK Services PMI. If this is revised upwards, then we could see Sterling rise.

However, the GBP/AUD exchange rate will continue to be driven by UK Covid-19 developments. If the vaccination programme appears to be on schedule, Sterling could continue to rise against AUD.

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